December 7, 2022
Australian Economic Update: Q3 GDP 2022
Post-COVID normalisation continues.
GDP rose by 0.6% q/q (5.9% y/y) and continues to reflect a strong economy where GDP is now 6.5% above pre-Pandemic levels – stronger than most major economies. The broad themes we know that are playing out in the economy were certainly reflected in this release. Household consumption growth remained solid – supported by recovering services spending, while a normalisation in goods spending appears to be well underway. Recovering supply chains and catch-up from weather-related disruptions were also evident. The tight labour market and broad-based inflation pressure we have seen were also reflected with a broader – though more volatile – set of wage/earning measures growing strongly and consumption and domestic demand deflators rising sharply. Overall, while these accounts confirm a strong economy and broad-based inflationary pressure, they are dated with higher frequency data pointing to at least some slow down in early Q4. That said, household income measures were very strong and we continue to see the RBA raising rates by 25bp at each of the next two meetings taking the cash rate to 3.6%. We continue to see growth slowing from here and will release full set of updated forecasts next week.
- In real terms, today’s release reflected another solid outcome for the economy – where GDP is now 6.5% above pre-COVID levels. Household consumption was again relatively strong, rising by 1.1% q/q, and business and dwelling investment also made contributions. Of note was the ongoing rebalancing within household consumption, with spending on goods (ex motor vehicles) down 0.4% q/q but services up 1.7% q/q. Motor vehicles were up solidly likely reflecting the clearing of backlogs. In a similar vein the solid outcome for non-res construction and small improvement in dwelling construction also likely reflects some catch-up after supply and weather-related disruptions earlier in the year. Trade detracted on net with rural exports rising, consumption imports higher, and services trade continuing to normalise.
- The broad-based inflationary pressure we have seen in other indicators was also evident in the accounts. The consumption and DFD deflators rose strongly in quarterly terms and in annual terms are now tracking at their highest rate since the early 1990s. Of particular note is the strong 2.6% q/q outcome for average earnings and a 2.2% rise in nominal unit labour costs (productivity adjusted wage costs). At face value these measures suggest a stronger underlying wage pressure than implied by the WPI, reflecting a very tight labour market.
- Elsewhere in the accounts, strong growth in household disposable income was outpaced by the ongoing rebound in household consumption, resulting in a further normalisation of the savings rate to 6.9% – around its pre-pandemic level. Income was well supported by strong growth in labour earnings, though the early impact of higher interest rates was obvious on both income payable and receivable.
For further details please see the NAB Australian Economic Update (GDP Q3 2022)